The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
Iovance Biotherapeutics, Inc. (the “Company,”
“we,” “us” or “our”) is a biopharmaceutical company focused on the development and commercialization
of novel cancer immunotherapy products designed to harness the power of a patient’s own immune system to eradicate cancer
cells. Our lead program is an adoptive cell therapy (ACT) utilizing tumor-infiltrating lymphocytes (TIL), which are T cells derived
from patients’ tumors, for the treatment of metastatic melanoma. The TIL are extracted from the tumor tissue, expanded in
our manufacturing suites and then infused back into the patient to fight their cancer. On June 1, 2017, the Company reincorporated
to become a Company governed by Delaware corporation laws. On June 27, 2017, we changed our name to Iovance Biotherapeutics, Inc.
Basis of Presentation of Unaudited Condensed Consolidated
Financial Information
The unaudited condensed consolidated financial
statements of the Company for the three and nine months ended September 30, 2017 and 2016 have been prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information
and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information
and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting
solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial
position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained
for a full fiscal year. The balance sheet information as of December 31, 2016, was derived from the audited financial statements
included in the Company's financial statements as of and for the year ended December 31, 2016 included in the Company’s Annual
Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2017. These financial
statements should be read in conjunction with that report.
Liquidity
The Company is currently engaged in the
development of therapeutics to fight cancer, specifically solid tumors. We do not have any commercial products and have not yet
generated any revenues from our business. We currently do not anticipate that we will generate any revenues during the upcoming
12 months, from the sale or licensing of any products. As shown in the accompanying financial statements, we have incurred a net
loss of $66.2 million for the nine months ended September 30, 2017 and used $57.7 million of cash in our operating activities during
the nine months ended September 30, 2017. As of September 30, 2017, we had $163.4 million of cash and cash equivalents.
The Company expects to further increase
its research and development activities, which will increase the amount of cash used during the remainder of 2017 and beyond. Specifically,
we expect continued spending on clinical trials, continued and expansion of manufacturing activities, higher payroll expenses as
we increase our professional and scientific staff and research and development activities. Based on the funds we have available,
we believe that we have sufficient capital to fund our anticipated operating expenses for at least 12 months from the date that
these financial statements are issued.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Short-term Investments
The Company's short-term investments are
classified as “available-for-sale”. The Company includes these investments in current assets and carries them at fair
value. Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive income. The
amortized cost of debt securities is adjusted for the amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Gains and losses on securities sold are recorded based on the specific
identification method and are included in interest income in the statement of operations. We have not incurred any realized gains
or losses from sales of securities to date.
Loss per Share
Basic net loss per share is computed using
the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted
average number of shares of common stock outstanding during the period increased to include the number of additional shares of
common stock that would have been outstanding if the potentially dilutive securities had been issued.
At September 30, 2017 and 2016, the following
outstanding common stock equivalents have been excluded from the calculation of net loss per share because their impact would be
anti-dilutive.
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
6,706,964
|
|
|
|
4,945,358
|
|
Warrants
|
|
|
6,411,216
|
|
|
|
6,808,216
|
|
Series A Convertible Preferred*
|
|
|
847,000
|
|
|
|
847,000
|
|
Series B Convertible Preferred*
|
|
|
7,946,673
|
|
|
|
7,946,673
|
|
Restricted stock awards
|
|
|
834
|
|
|
|
9,167
|
|
Restricted stock units
|
|
|
126,041
|
|
|
|
550,000
|
|
|
|
|
22,038,728
|
|
|
|
21,106,414
|
|
* on an as-converted basis
The dilutive effect of potentially dilutive
securities is reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock
method, an increase in the fair market value of the Company's common stock can result in a greater dilutive effect from potentially
dilutive securities.
Fair Value Measurements
Under Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, fair value is defined as the price
at which an asset could be exchanged or a liability transferred in a transaction between knowledgeable, willing parties in the
principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices
or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models
are applied.
Assets and liabilities recorded at fair
value in our financial statements are categorized based upon the level of judgment associated with the inputs used to measure their
fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of
these assets and liabilities, are as follows:
Level 1—Inputs are unadjusted,
quoted prices in active markets for identical assets at the reporting date. Active markets are those in which transactions for
the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2—Are inputs, other than
quoted prices included in Level 1, that are either directly or indirectly observable for the asset or liability through correlation
with market data at the reporting date and for the duration of the instrument’s anticipated life.
The fair valued assets we held and have
held are generally assessed under Level 2 were corporate bonds and commercial paper. We utilize third party pricing services
in developing fair value measurements where fair value is based on valuation methodologies such as models using observable market
inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. We use quotes
from external pricing service providers and other on-line quotation systems to verify the fair value of investments provided by
our third-party pricing service providers. We review independent auditor’s reports from our third-party pricing service providers
particularly regarding the controls over pricing and valuation of financial instruments and ensure that our internal controls address
certain control deficiencies, if any, and complementary user entity controls are in place.
Level 3—Unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and
which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the reporting
date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
We do not have fair valued assets classified under Level 3.
As of September 30, 2017, there were no
financial assets measured at fair value.
Financial assets measured at fair value
on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations (in
thousands):
|
|
Assets at Fair Value as of December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Commercial paper
|
|
$
|
-
|
|
|
$
|
29,178
|
|
|
$
|
-
|
|
|
$
|
29,178
|
|
Corporate debt securities
|
|
|
-
|
|
|
|
26,578
|
|
|
|
-
|
|
|
|
26,578
|
|
US Government agency securities
|
|
|
-
|
|
|
|
3,997
|
|
|
|
-
|
|
|
|
3,997
|
|
Total
|
|
$
|
-
|
|
|
$
|
59,753
|
|
|
$
|
-
|
|
|
$
|
59,753
|
|
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include valuation
of short-term investments, accounting for potential liabilities, the valuation allowance associated with the Company’s deferred
tax assets, and the assumptions made in valuing stock instruments issued for services.
Principles of Consolidation
The accompanying
condensed consolidated financial statements include the accounts of Iovance Biotherapeutics, Inc. and its wholly-owned subsidiary,
Iovance Biotherapeutics GmbH (formerly Lion Biotechnologies GmbH). All intercompany accounts and transactions have been eliminated.
The U.S. dollar is the functional currency for all the Company's consolidated operations.
Stock-Based Compensation
The Company periodically grants stock options
and warrants to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company
accounts for stock option grants to employees based on the authoritative guidance provided by the FASB where the value of the award
is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option grants to non-employees
in accordance with the authoritative guidance of the FASB where the value of the stock compensation is determined based upon the
measurement date at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance
to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting
period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee,
option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement
date.
The fair value of the Company's common
stock option grants is estimated using a Black-Scholes option pricing model, which uses certain assumptions related to risk-free
interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded
based upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions used
in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
The Company has in the past issued restricted
shares of its common stock for share-based compensation programs. The Company measures the compensation cost with respect to restricted
shares issued to employees based upon the estimated fair value of the equity instruments at the date of the grant, and is recognized
as expense over the period which an employee is required to provide services in exchange for the award.
The fair value of restricted stock units
is based on the closing price of the Company’s common stock on the grant date.
Total stock-based compensation expense
related to all our stock-based awards was recorded on the statements of operations as follows (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
1,053
|
|
|
$
|
640
|
|
|
$
|
4,336
|
|
|
$
|
1,818
|
|
General and administrative
|
|
|
1,566
|
|
|
|
8,005
|
|
|
|
4,872
|
|
|
|
13,963
|
|
Total stock-based compensation expense
|
|
$
|
2,619
|
|
|
$
|
8,645
|
|
|
$
|
9,208
|
|
|
$
|
15,781
|
|
Total stock-based compensation broken down
based on each individual instrument was as follows (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Stock option expense
|
|
$
|
2,562
|
|
|
$
|
7,877
|
|
|
$
|
8,193
|
|
|
$
|
13,944
|
|
Restricted stock award expense
|
|
|
6
|
|
|
|
145
|
|
|
|
33
|
|
|
|
976
|
|
Restricted stock unit expense
|
|
|
51
|
|
|
|
623
|
|
|
|
982
|
|
|
|
861
|
|
Total stock-based compensation expense
|
|
$
|
2,619
|
|
|
$
|
8,645
|
|
|
$
|
9,208
|
|
|
$
|
15,781
|
|
Preferred Stock
The Company applies the accounting standards
for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred
shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable
preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as
temporary equity. At all other times, preferred shares are classified as stockholders’ equity.
Convertible Instruments
The Company applies the accounting standards
for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion
options. The accounting standards require companies to bifurcate conversion options from their host instruments and account for
them as free-standing derivative financial instruments per certain criteria. The criteria includes circumstances in which (i) the
economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics
and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract
is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value
reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative instrument would
be considered a derivative instrument. The derivative is subsequently marked to market at each reporting date based on current
fair value, with the changes in fair value reported in results of operations.
Conversion options that contain variable
settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities
at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host
instrument.
The Company also records, when necessary,
deemed dividends for the intrinsic value of the conversion options embedded in preferred stock based upon the difference between
the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded
in the preferred stock.
Recent Accounting Standards
In March 2016, the FASB issued ASU No. 2016-09, Compensation
- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU identifies areas for simplification
involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification
of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized
as they occur, as well as certain classifications on the statement of cash flows. This ASU will be effective for fiscal years beginning
after December 15, 2016, and interim periods within those annual periods. The Company adopted this ASU and it did not have a material
impact on the Company’s disclosures in the footnotes to its financial statements.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting, clarifying when a change to the terms or conditions
of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the
fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms
and conditions of the award. The new guidance is effective for the Company on a prospective basis beginning on January 1, 2018,
with early adoption permitted. The Company is currently evaluating the impact that ASU 2017-09 will have on its consolidated financial
statements and related disclosures.
Subsequent Events
The Company evaluates events that have
occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did
not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed
consolidated financial statements.
Reclassifications
Certain amounts within the statements of
cash flows for the prior periods have been reclassified to conform with the current period presentation. These reclassifications
had no impact on the Company's previously reported financial position or cash flows for any of the periods presented.
NOTE 3. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents and short-term
investments consist of the following (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash - Demand deposits
|
|
$
|
72,286
|
|
|
$
|
76,071
|
|
Cash equivalents - Money market funds
|
|
|
91,094
|
|
|
|
30,646
|
|
Cash and cash equivalents total
|
|
$
|
163,380
|
|
|
$
|
106,717
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Commercial paper
|
|
$
|
-
|
|
|
$
|
29,178
|
|
Corporate debt securities
|
|
|
-
|
|
|
|
26,578
|
|
US Government agency securities
|
|
|
-
|
|
|
|
3,997
|
|
Short-term investments total
|
|
$
|
-
|
|
|
$
|
59,753
|
|
Money market funds and short-term investments
include the following securities with gross unrealized gains and losses (in thousands):
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
As of September 30, 2017
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Money market funds
|
|
$
|
91,094
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
91,094
|
|
Unrealized gains and losses are included in Accumulated other
comprehensive income.
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
As of December 31, 2016
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Money market funds
|
|
$
|
30,646
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
30,646
|
|
Commercial paper
|
|
|
29,118
|
|
|
|
60
|
|
|
|
-
|
|
|
|
29,178
|
|
Corporate debt securities
|
|
|
26,606
|
|
|
|
1
|
|
|
|
(29
|
)
|
|
|
26,578
|
|
US Government agency securities
|
|
|
4,000
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
3,997
|
|
Total
|
|
$
|
90,370
|
|
|
$
|
61
|
|
|
$
|
(32
|
)
|
|
$
|
90,399
|
|
At September 30, 2017, the Company did
not have any short-term investments.
The Company’s investment policy limits
investments to certain types of instruments such as certificates of deposit, money market instruments, obligations issued by the
U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration
by type and issuer.
NOTE 4. BALANCE SHEET COMPONENTS
Property and equipment, net consists of the following (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Lab equipment
|
|
$
|
3,064
|
|
|
$
|
2,405
|
|
Leasehold improvements
|
|
|
1,707
|
|
|
|
1,381
|
|
Computer equipment
|
|
|
331
|
|
|
|
245
|
|
Office furniture and equipment
|
|
|
179
|
|
|
|
148
|
|
Construction in progress
|
|
|
105
|
|
|
|
276
|
|
Total Property and equipment, cost
|
|
|
5,386
|
|
|
|
4,455
|
|
Less: Accumulated depreciation and amortization
|
|
|
(2,791
|
)
|
|
|
(2,081
|
)
|
Property and equipment, net
|
|
$
|
2,595
|
|
|
$
|
2,374
|
|
Accrued liabilities consist of the following (in thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accrued payroll and employee related expenses
|
|
$
|
1,556
|
|
|
$
|
1,581
|
|
Legal and related services
|
|
|
1,236
|
|
|
|
927
|
|
Clinical related
|
|
|
735
|
|
|
|
614
|
|
Manufacturing related
|
|
|
1,352
|
|
|
|
437
|
|
Deferred rent
|
|
|
459
|
|
|
|
422
|
|
Accrued other
|
|
|
286
|
|
|
|
124
|
|
|
|
$
|
5,624
|
|
|
$
|
4,105
|
|
NOTE 5. STOCKHOLDERS’ EQUITY
Public Offering
On September 25, 2017, the Company sold 8,846,154 shares of
its common stock in an underwritten public offering at $6.50 per share for net proceeds of $53.8 million after deducting underwriting
discounts and expenses of the offering.
Preferred stock
The Company’s certificate of incorporation
authorizes the issuance of up to 50,000,000 shares of “blank check” preferred stock. At September 30, 2017 and December
31, 2016, 17,000 shares have been designated as Series A Convertible Preferred Stock and 11,500,000 designated as Series B Convertible
Preferred Stock.
Series A Convertible Preferred Stock
A total of 17,000 shares of Series A Convertible
Preferred Stock (“Series A Preferred Stock”) have been authorized for issuance under the Certificate of Designation
of Preferences and Rights of Series A Convertible Preferred Stock. The shares of Series A Preferred Stock have a stated value of
$1,000 per share and are initially convertible into shares of common stock at a price of $2.00 per share, subject to adjustment.
The Series A Preferred Stock may, at the
option of each investor, be converted into fully paid and non-assessable shares of common stock. The holders of shares of Series
A Preferred Stock do not have the right to vote on matters that come before stockholders. In the event of any dissolution or winding
up of the Company, proceeds shall be paid pari passu among the holders of the shares of common stock and preferred stock, pro rata
based on the number of shares held by each holder. The Company may not declare, pay or set aside any dividends on shares of capital
stock of the Company (other than dividends on shares of common stock payable in shares of common stock) unless the holders of the
Series A Preferred Stock shall first receive an equal dividend on each outstanding share of Series A Preferred Stock. The common
shares issued were determined on a formula basis of 500 common shares for each share of Series A Preferred Stock converted. During
the three and nine months ended September 30, 2017 and 2016, no Series A Preferred stock was converted into common stock, respectively.
Series B Preferred Stock
In June 2016, the Company created a new
class of Preferred Stock designated as Series B Convertible Preferred Stock (the “Series B Preferred”). The rights
of the Series B Preferred are set forth in the Certificate of Designation of Rights, Preferences and Privileges of Series B
Preferred Stock (the “Series B Certificate of Designation”). A total of 11,500,000 shares of Series B Preferred
are authorized for issuance under the Series B Certificate of Designation. The shares of Series B Preferred have a stated value
of $4.75 per share and are convertible into shares of common stock at an initial conversion price of $4.75 per share.
Holders of the Series B Preferred are entitled
to dividends on an as-if-converted basis in the same form as any dividends actually paid on shares of the Company’s Series
A Preferred Stock or the Company’s common stock. So long as any Series B Preferred remains outstanding, the Company may not
redeem, purchase or otherwise acquire any material amount of our Series A Preferred Stock or any junior securities.
During the three and nine months ended
September 30, 2017 and 2016, zero and 3,421,960 Series B Preferred were converted into common stock. At September 30, 2017, 7,946,673
shares of Series B Preferred Stock remained outstanding.
Warrants
The following table summarizes the Company’s stock warrant
activity for the nine months ended September 30, 2017:
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Average
|
|
|
|
Under
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Outstanding at January 1, 2017
|
|
|
6,566,216
|
|
|
$
|
2.51
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(155,000
|
)
|
|
|
2.50
|
|
Expired/Cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2017
|
|
|
6,411,216
|
|
|
$
|
2.51
|
|
The warrants have a weighted average remaining life of 1.1 years
at September 30, 2017.
NOTE 6. STOCK BASED COMPENSATION
Stock Plans
On September 19, 2014, the Company’s
Board of Directors adopted the Iovance Biotherapeutics, Inc. 2014 Equity Incentive Plan (the “2014 Plan”). The 2014
Plan was approved by our stockholders at the annual meeting of stockholders held in November 2014. The 2014 Plan as approved by
the stockholders authorized the issuance up to an aggregate of 2,350,000 shares of common stock. On April 10, 2015, the Board amended
the 2014 Plan to increase the total number of shares that can be issued under the 2014 Plan by 1,650,000 from 2,350,000 shares
to 4,000,000 shares. The increase in shares available for issuance under the 2014 Plan was approved by stockholders on June 12,
2015.
On August 16, 2016, the stockholders approved
the increase the total number of shares that can be issued under the 2014 Plan by 5,000,000 from 4,000,000 shares to 9,000,000
shares. At September 30, 2017, 2,608,830 shares were available for grant under the Company’s 2014 Plan.
Restricted Stock Units
On June 1, 2016, the Company entered into
a restricted stock unit agreement with the Company’s Chief Executive Officer (Maria Fardis, Ph.D.) pursuant to which the
Company granted Dr. Fardis 550,000 non-transferrable restricted stock units at fair market value of $5.87 per share as an inducement
of employment pursuant to the exception to The NASDAQ Global Market rules that generally require stockholder approval of equity
incentive plans. Of the 550,000 restricted stock units 137,500 restricted stock units vested on the first anniversary of the effective
date of Dr. Fardis’ employment agreement, and 275,000 restricted stock units vested in 2017 upon the satisfaction of certain
clinical trial and manufacturing milestones. The remaining 137,500 restricted stock units will vest in equal monthly installments
over the 36-month period that commenced on June 1, 2017 (the first anniversary of the effective date of Dr. Fardis’ employment),
provided that Dr. Fardis has been continuously employed with the Company as of such vesting dates. As of September 30, 2017, 126,041
restricted stock units remained unvested.
Stock-based compensation expense for restricted
stock units is measured based on the closing fair market value of the Company's common stock on the date of grant. The stock compensation
expense was $0.1 million and $0.6 million for the three months ended September 30, 2017 and 2016, respectively and was $1.0 million
and $0.9 million for the nine months ended September 30, 2017 and 2016, respectively.
As of September 30, 2017, there
is $0.7 million of total unrecognized compensation expense related to the restricted stock units to be recognized over a weighted
average period of 2.7 years.
Stock Options
The following table summarizes the Company’s stock options
activity for the nine months ended September 30, 2017:
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
Outstanding at January 1, 2017
|
|
|
6,233,150
|
|
|
$
|
7.24
|
|
Granted
|
|
|
2,044,400
|
|
|
|
6.59
|
|
Exercised
|
|
|
(484,850
|
)
|
|
|
5.27
|
|
Expired/Forfeited
|
|
|
(1,085,736
|
)
|
|
|
6.36
|
|
Outstanding at September 30, 2017
|
|
|
6,706,964
|
|
|
$
|
7.33
|
|
The Company recorded stock-based compensation
costs related to options of $2.6 million and $7.9 million for the three months ended September 30, 2017 and 2016, respectively
and $8.2 million and $13.9 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30,
2017, there was $22.1 million of total unrecognized compensation expense related to the options to be recognized over
a weighted average period of 2.0 years.
The weighted-average grant date fair value
per share of options granted under the Plan was $5.81 and $8.97 for the three months ended September 30, 2017 and 2016, respectively
and was $6.46 and $6.75 for the nine months ended September 30, 2017 and 2016, respectively.
Restricted Common Stock Awards
The following table summarizes the Company’s
restricted common stock awards activity for the nine months ended September 30, 2017:
|
|
|
|
|
Weighted Average
|
|
|
|
Number
|
|
|
Grant Date
|
|
|
|
of Shares
|
|
|
Fair Value
|
|
Non-vested shares, January 1, 2017
|
|
|
7,084
|
|
|
$
|
6.48
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(6,250
|
)
|
|
|
6.53
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested shares, September 30, 2017
|
|
|
834
|
|
|
$
|
6.10
|
|
The Company recorded stock compensation
costs related to restricted stock awards of $0.0 million and $0.2 million for the three months ended September 30, 2017 and 2016,
respectively and was $0.0 million and $1.0 million for the nine months ended September 30, 2017 and 2016, respectively. As of September
30, 2017, the amount of unvested compensation related to the unvested outstanding shares of restricted common stock was immaterial.
NOTE 7. AGREEMENTS
National Institutes of Health (NIH) and the National Cancer
Institute (NCI)
Cooperative Research and Development Agreement (CRADA)
In August 2011, the Company signed a five-year
CRADA with the NCI to work with Dr. Steven Rosenberg on developing adoptive cell immunotherapies that are designed to destroy metastatic
melanoma cells using a patient’s tumor infiltrating lymphocytes.
In January 2015, the Company executed an
amendment (the “Amendment”) to the CRADA to include four new indications. As amended, in addition to metastatic melanoma,
the CRADA included the development of TIL therapy for the treatment of patients with bladder, lung, triple-negative breast, and
HPV-associated cancers.
In August 2016, the NCI and the Company
entered into a second amendment to the CRADA. The principal changes effected by the second amendment included (i) extending the
term of the CRADA by another five years to August 2021, and (ii) modifying the focus on the development of unmodified TIL as a
stand-alone therapy or in combination with U.S. Food and Drug Administration (“FDA”) licensed products and commercially
available reagents routinely used for adoptive cell therapy. The parties will continue the development of improved methods for
the generation and selection of TIL with anti-tumor reactivity in metastatic melanoma, bladder, lung, breast, and HPV-associated
cancers.
Pursuant to the terms of the CRADA, we
are currently required to make quarterly payments of $0.5 million to the NCI for support of research activities. To the extent
we license patent rights relating to a TIL-based product candidate, we will be responsible for all patent-related expenses and
fees, past and future, relating to the TIL-based product candidate. In addition, we may be required to supply certain test articles,
including TIL, grown and processed under cGMP conditions, suitable for use in clinical trials, where we hold the investigational
new drug application for such clinical trial. The extended CRADA has a five-year term expiring in August 2021. The Company or the
NCI may unilaterally terminate the CRADA for any reason or for no reason at any time by providing written notice at least 60 days
before the desired termination date. The Company recorded costs associated with the CRADA of $0.5 million for the three months
ended September 30, 2017 and 2016, respectively and was $1.5 million for the nine months ended September 30, 2017 and 2016, respectively.
These costs were recorded as research and development expenses.
Patent License Agreement Related to the Development and Manufacture
of TIL
Effective October 5, 2011, the Company
entered into a Patent License Agreement with the National Institutes of Health, an agency of the United States Public Health Service
within the Department of Health and Human Services (NIH), which Patent License Agreement was subsequently amended on February 9,
2015 and October 2, 2015. Pursuant to the Patent License Agreement as amended, the NIH granted the Company licenses, including
exclusive, co-exclusive, and non-exclusive licenses, to certain technologies relating to autologous tumor infiltrating lymphocyte
adoptive cell therapy products for the treatment of metastatic melanoma, lung, breast, bladder and HPV-positive cancers. The Patent
License Agreement requires the Company to pay royalties based on a percentage of net sales (which percentage is in the mid-single
digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark royalty payments on the achievement of
certain clinical and regulatory milestones for each of the various indications and other direct costs incurred by the NIH pursuant
to the agreement.
Exclusive Patent License Agreement Related to TIL Selection
On February 10, 2015, the Company entered
into an Exclusive Patent License Agreement with the NIH under which the Company received an exclusive license to the NIH’s
rights to patent-pending technologies related to methods for improving adoptive cell therapy through more potent and efficient
production of TIL from melanoma tumors by selecting for T-cell populations that express various inhibitory receptors. Unless terminated
sooner, the license shall remain in effect until the last licensed patent right expires.
In consideration for the exclusive rights
granted under the Exclusive Patent License Agreement, the Company agreed to pay the NIH a non-refundable upfront licensing fee
in the amount of $0.8 million. The Company also agreed to pay customary royalties based on a percentage of net sales of a licensed
product (which percentage is in the mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark
payments upon the successful completion of clinical studies involving licensed technologies, the receipt of the first FDA approval
or foreign equivalent for a licensed product or process resulting from the licensed technologies, the first commercial sale of
a licensed product or process in the United States, and the first commercial sale of a licensed product or process in any foreign
country. The Company will also be responsible for all costs associated with the preparation, filing, maintenance and prosecution
of the patent applications and patents covered by the License. The costs associated with this agreement were immaterial for the
three and nine month periods.
H. Lee Moffitt Cancer Center
Research Collaboration and Clinical
Grant Agreements with Moffitt
In September 2014, we entered into a research
collaboration agreement with Moffitt to jointly engage in translational research and development of adoptive tumor-infiltrating
lymphocyte cell therapy with improved anti-tumor properties and process.
In December 2016, we entered into a new
three-year Sponsored Research Agreement with Moffitt (the “Moffitt SRA”). At the same time, we entered into a Clinical
Grant Agreement with Moffitt to support an ongoing clinical trial at Moffitt that combines TIL therapy with Opdivo® (nivolumab)
for the treatment of patients with metastatic melanoma. In June 2017, we entered into a second Clinical Grant Agreement with Moffitt
to support a new clinical trial at Moffitt that combines TIL therapy with Opdivo for the treatment of patients with non-small cell
lung cancer.
Exclusive License Agreement with Moffitt
The Company entered into a license agreement
with Moffitt (the “Moffitt License”), effective as of June 28, 2014, under which the Company received a world-wide
license to Moffitt’s rights to patent-pending technologies related to methods for improving TIL for adoptive cell therapy.
Unless earlier terminated, the term of the license extends until the earlier of the expiration of the last issued patent related
to the licensed technology or 20 years after the effective date of the license agreement.
Pursuant to the Moffitt License, the Company
paid an upfront licensing fee in the amount of $0.1 million. A patent issuance fee will also be payable under the Moffitt License,
upon the issuance of the first U.S. patent covering the subject technology. In addition, the Company agreed to pay milestone license
fees upon completion of specified milestones, customary royalties based on a specified percentage of net sales (which percentage
is in the low single digits) and sublicensing payments, as applicable, and annual minimum royalties beginning with the first sale
of products based on the licensed technologies, which minimum royalties will be credited against the percentage royalty payments
otherwise payable in that year. The Company will also be responsible for all costs associated with the preparation, filing, maintenance
and prosecution of the patent applications and patents covered by the Moffitt License related to the treatment of any cancers in
the United States, Europe and Japan and in other countries designated by the Company in agreement with Moffitt. The Company recorded
costs associated with Moffitt of $2.0 million and $0.0 million for the three months ended September 30, 2017 and 2016, respectively
and $4.3 million and $0.4 million for the nine months ended September 30, 2017 and 2016, respectively. These costs were recorded
as research and development expenses.
PolyBioCept and Karolinska University Hospital
PolyBioCept Exclusive and Co-Exclusive License Agreement
On September 14, 2016, the Company entered
into an Exclusive and Co-Exclusive License Agreement (the “PolyBioCept Agreement”) with PolyBioCept AB, a corporation
organized under the laws of Sweden (“PolyBioCept”). PolyBioCept has filed two patent applications with claims related
to a cytokine cocktail for use in expansion of lymphocytes, one of which has been abandoned. Under the PolyBioCept Agreement, the
Company received the exclusive right and license to PolyBioCept’s intellectual property to develop, manufacture, market and
genetically engineer TIL produced by expansion, selection and enrichment using a proprietary cytokine cocktail. The Company also
received a co-exclusive license (with PolyBioCept) to develop, manufacture and market genetically engineered TIL under the same
intellectual property. The licenses are for the use in all cancers and are worldwide in scope, with the exception that the uses
in melanoma are not included for certain countries of the former Soviet Union.
The Company paid PolyBioCept a total of
$2.5 million as an up-front exclusive license payment. The Company will also have to make additional milestone payments to PolyBioCept
under the PolyBioCept Agreement if, and when, (i) certain product development milestones are achieved, (ii) certain regulatory
approvals have been obtained from the FDA and/or the European Medicines Agency, and (iii) certain product sales targets are achieved.
The milestone payments will be payable both in cash (U.S. dollars) and in shares of the Company’s common stock. If all of
the foregoing product development, regulatory approval and sales milestone payments are met, the Company will have to pay PolyBioCept
an additional $8.7 million and will have to issue to PolyBioCept a total 2,219,376 shares of unregistered common stock. In addition
to these potential payments, the Company will reimburse PolyBioCept up to $0.2 million in expenses related to the transfer of know-how
and will pay PolyBioCept $0.1 million as a clinical trials management fee. The Company also separately engaged PolyBioCept as a
consultant to provide certain product development and research related services in a one-year agreement for up to $0.2 million,
subject to the consent of the Karolinska Institute to the services to be performed by its employees thereunder. The PolyBioCept
Agreement has an initial term of 30 years, and may be extended for additional five-year periods. The Company recorded costs associated
with the PolyBioCept of $0.0 million and $2.4 million for the three months ended September 30, 2017 and 2016, respectively and
$0.2 million and $2.5 million for the nine months ended September 30, 2017 and 2016, respectively. These costs were recorded as
research and development expenses.
Karolinska University Hospital and Karolinska Institute Agreements
In connection with the execution of the
PolyBioCept Agreement, the Company also (i) entered into a clinical trials agreement with the Karolinska University Hospital to
conduct clinical trials in glioblastoma and pancreatic cancer at the Karolinska University Hospital, and (ii) agreed to enter into
a sponsored research agreement with the Karolinska Institute for the research of the cytokine cocktail in additional indications.
The Company agreed to enter into the sponsored research agreement within 90 days after the date of the PolyBioCept Agreement, which
date has been extended by amendments to the PolyBioCept Agreement. Failure to enter into the sponsored research agreement or further
amend the PolyBioCept Agreement will give PolyBioCept the right to terminate the PolyBioCept Agreement (and the Company shall have
the right to repayment of $2.2 million of the payments it made). The Company will pay the Karolinska Institute an additional $2.6
million in connection with these other related agreements. In 2016 the Company paid Karolinska University Hospital $1.6 million
under this agreement to conduct the clinical trials. The $1.6 million payment has been classified as prepaid expense and will be
expensed in accordance with the Company’s Research and Development Expense significant accounting practices. The Company
had no costs associated with the Karolinska University Hospital for the three months ended September 30, 2017 and 2016, respectively
and was $0.7 million and $0.0 million for the nine months ended September 30, 2017 and 2016, respectively. These costs were recorded
as research and development expenses.
M.D. Anderson Cancer Center
Strategic Alliance Agreement
On April 17, 2017, the Company entered
into a Strategic Alliance Agreement (the “SAA”) with M.D. Anderson Cancer Center (“M.D. Anderson”) under
which the Company and M.D. Anderson agreed to conduct clinical and preclinical research studies. The Company agreed in the SAA
to provide total funding not to exceed approximately $14.2 million for the performance of the multi-year studies under the SAA.
In return, we will acquire all rights to inventions resulting from the studies and have been granted a non-exclusive, sub-licensable,
royalty-free, and perpetual license to specified background intellectual property of M.D. Anderson reasonably necessary to exploit,
including the commercialization of, any invention. We have also been granted certain rights in clinical data generated by M.D.
Anderson outside of the clinical trials to be performed under the SAA. The SAA’s term shall continue in effect until the
later of the fourth anniversary of the SAA or the completion or termination of the research and receipt by us of all deliverables
due from M.D. Anderson thereunder. As of September 30, 2017, the Company had paid $1.4 million under this agreement. This
amount has been recorded as a prepaid asset, and will be amortized to research and development expenses based on enrollment and
other factors. The Company has not recorded any expense associated with the M.D. Anderson SAA for the three and nine months ended
September 30, 2017.
MedImmune
In December 2015, the Company entered into
a collaboration to conduct clinical and preclinical research in immuno-oncology with MedImmune, the global biologics research and
development arm of AstraZeneca. Under the terms of the agreement, the Company will fund and conduct at least one Phase 2a clinical
trial combining MedImmune's PD-L1 inhibitor,
IMFINZI™ (
durvalumab)with
TIL for the treatment of patients. MedImmune will supply IMFINZI for the clinical trials. The purpose of the studies is to establish
a dosing regimen for this combination therapy and assess its safety and efficacy.
NOTE 8. LEGAL PROCEEDINGS
Class Action Lawsuits
. On April
10, 2017, the SEC announced settlements with us and with other public companies and unrelated parties in the
In the Matter
of Certain Stock Promotion
investigation. Our settlement with the SEC is consistent with our previous disclosures (including
in our Form 10-K that we filed with the SEC on March 9, 2017). On April 14 2017, a purported shareholder filed a class action complaint
in the United States District Court, Northern District of California for violations of the federal securities laws (
Leonard
DeSilvio v. Lion Biotechnologies, Inc., et al., case no: 3:17cv2086
) against our company and three of our former officers
and directors. On April 19, 2017, a second class action complaint
(Amra Kuc vs. Lion Biotechnologies, Inc., et al., case
no: 3:17cv2086
) was filed in the same court. Both complaints allege, among other things, that the defendants violated the federal
securities laws by making materially false and misleading statements, or by failing to make certain disclosures, regarding the
actions taken by Manish Singh, our former CEO, and our former investor relations firm that were the subject of the
In the Matter
of Certain Stock Promotions
SEC investigation. On July 20, 2017 the plaintiff in the
Kuc
case filed a notice to voluntarily
dismiss that case. The Court entered an order dismissing the
Kuc
complaint on July 21, 2017. On July 26, 2017, the court
appointed a movant as lead plaintiff. On September 8, 2017, the lead plaintiff filed an amended complaint that alleges, among other
things, that the defendants violated the federal securities laws by making materially false and misleading statements, or by failing
to make certain disclosures, regarding the actions taken by Manish Singh and our former investor relations firm that were the subject
of the
In the Matter of Certain Stock Promotions
SEC investigation. On October 6, 2017, the court entered an order setting
a schedule for the case, which includes a briefing schedule for motions to dismiss and a hearing date of December 22, 2017.
We intend to vigorously defend against
the foregoing complaints. Based on the very early stage of the litigation, it is not possible to estimate the amount or range of
possible loss that might result from an adverse judgment or a settlement of these matters.
Solomon Capital, LLC.
On April 8,
2016, a lawsuit titled
Solomon Capital, LLC, Solomon Capital 401(K) Trust, Solomon Sharbat and Shelhav Raff v. Lion Biotechnologies,
Inc.
was filed by Solomon Capital, LLC, Solomon Capital 401(k) Trust, Solomon Sharbat and Shelhav Raff against the Company
in the Supreme Court of the State of New York, County of New York (index no. 651881/2016). The plaintiffs allege that, between
June and November 2012 they provided to the Company $0.1 million and that they advanced and paid on our behalf an additional $0.2
million. The complaint further alleges that the Company agreed to (i) provide them with promissory notes totaling $0.2 million,
plus interest, (ii) issue a total of 111,425 shares to the plaintiffs (before the 1-for-100 reverse split of our common stock effected
in September 2013), and (iii) allow the plaintiffs to convert the foregoing funds into our securities in the next transaction.
The plaintiffs allege that they should have been able to convert their advances and payments into shares of the Company’s
common stock in the restructuring that was effected in May 2013. Based on the foregoing, the plaintiffs allege causes for breach
of contract and unjust enrichment and demand judgment against the Company in an unspecified amount exceeding $1.5 million, plus
interest and attorneys’ fees.
On June 3, 2016, the Company filed an answer
and counterclaims in the lawsuit. In its counterclaims, the Company alleges that the plaintiffs misrepresented their qualifications
to assist it in fundraising and that they failed to disclose that they were under investigation for securities laws violations.
The Company is seeking damages in an amount exceeding $0.5 million and an order rescinding any and all agreements that the plaintiffs
contend entitled them to obtain stock in the Company.
On April 19, 2017, the Court granted plaintiffs’
counsel’s motion to withdraw from the case. On May 25, 2017, plaintiffs filed a notice that they had hired new counsel. On
June 7, 2017, the judge presiding over the case recused herself because of a conflict of interest arising from her relationship
with plaintiffs’ new attorneys. The case has been assigned to a new judge, but the court has not yet scheduled a status
conference or otherwise set a schedule for the case.
The Company intends to vigorously defend
the complaint and pursue its counterclaims.
Litigation Involving Dr. Steven
Fischkoff
. On June 13, 2017, in an action titled
Steven Fischkoff v. Lion Biotechnologies, Inc. and Maria
Fardis
, Dr. Steven Fischkoff, our former Vice President and Chief Medical Officer, filed a lawsuit against the Company in
the Supreme Court of the State of New York County of New York. Dr. Fischkoff was dismissed by the Company on March 28,
2017. Dr. Fischkoff was terminated “for cause” as that term is defined in his employment agreement. In his
complaint, Dr. Fischkoff alleges breaches of his employment agreement and violation of New York Labor Law for failure to pay
monies purportedly owed to him, and seeks to recover amounts including severance pay and retention bonus (totaling $300,000),
a prorated incentive bonus, and amounts relating to unvested options to 150,000 shares of our common stock, together with
prejudgment interest, costs, expenses and attorneys’ fees. On July 5, 2017, the Company filed a removal petition and
removed the lawsuit to the United States District Court for the Southern District of New York, where the case has been
assigned case no. 17-cv-05041. On July 14, 2017, the Company filed a partial answer and counterclaims against Dr.
Fischkoff, denying his allegations, and alleging breach of contract and related claims, breach of fiduciary duty, and state
and federal trade secret misappropriation and related claims, and sought a temporary restraining order and preliminary
injunction against Dr. Fischkoff. On July 18, 2017, the court issued a temporary restraining order against Dr.
Fischkoff requiring him to return Company materials, prohibiting him from disclosing or using Company materials, and granting
expedited discovery, which is currently proceeding.
We intend to vigorously defend against Dr. Fischkoff’s
lawsuit and pursue the Company’s counterclaims. Based on the very early stage of the litigation, it is not possible
to estimate the amount or range of (i) a possible loss that might result from an adverse judgment or settlement of this action,
or (ii) the potential recovery that might result from a favorable judgment or a settlement of this action.
Other Matters.
During the second
quarter of 2016, warrants representing 128,500 shares were exercised. The 128,500 shares of common stock had previously been registered
for re-sale. However, we believe that these 128,500 warrant shares were sold by the holders in open market transactions in May
2016 at a time when the registration statement was ineffective. Accordingly, those sales were not made in accordance with Sections
5 and 10(a)(3) of the Securities Act, and the purchasers of those shares may have rescission rights (if they still own the shares)
or claims for damages (if they no longer own the shares). The amount of any such liability is uncertain and as such, an accrual
for any potential loss has not been made. The Company believes that any claims brought against it would not result in a material
impact to the Company’s financial position or results of operations. The Company has not accrued a loss for a potential claim
associated with this matter as it is unable to estimate any at this time.
The Company may be involved, from time
to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties
and outcomes are not predictable with assurance. The Company accrues amounts, to the extent they can be reasonably estimated, that
it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company
believes will result in a probable loss. While there can be no assurances as to the ultimate outcome of any legal proceeding or
other loss contingency involving the Company, management does not believe any pending matter will be resolved in a manner that
would have a material adverse effect on the Company’s financial position, results of operations or cash flows.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Facilities Leases
Tampa Lease
In December 2014, the Company commenced
a five-year non-cancellable operating lease with the University of South Florida Research Foundation for a 5,115 square foot facility
located in Tampa, Florida. The facility is part of the University of South Florida research park and is used as the Company’s
research and development facilities. The Company has the option to extend the lease term of this facility for an additional five-year
period on the same terms and conditions, except that the base rent for the renewal term will be increased in accordance with the
applicable consumer price index.
In April 2015, the Company amended the
original lease agreement to increase the rentable space to 6,043 square feet. In September 2016, the Company further increased
the rentable space to 8,673 square feet. The per square foot cost and term of the lease were unchanged.
San Carlos Lease
On August 4, 2016, the Company entered
into an agreement to lease 8,733 square feet in San Carlos, California. The term of the lease is 54 months subsequent to the commencement
date, and total expected rental payments under the lease are expected to be $2.1 million.
On April 28, 2017, the Company entered
into a sublease agreement with Teradata US, Inc., pursuant to which the Company agreed to sublease certain office space located
adjacent to the Company's headquarters in San Carlos, California. The space consists of approximately 11,449 rentable square
feet in the building located in San Carlos, California and will expire on October 31, 2018.
New York Lease
The Company leases office space in New
York for a monthly rental of approximately $18,000 a month through July 2017. On June 5, 2017, the Company entered into an agreement
whereby the Company will lease office space from August 1, 2017 to July 31, 2018 for approximately $9,000 a month.
The Company recognizes rental expense on
the facilities on a straight-line basis over the lease term. Differences between the straight-line rent expense and rent payments
are classified as deferred rent liability on the balance sheet. As of September 30, 2017, the Company's future minimum lease
payments under non-cancelable operating leases are as follows (in thousands):
Year
|
|
Operating
Lease Commitments
|
|
2017 (remaining three months)
|
|
$
|
276
|
|
2018
|
|
|
1,023
|
|
2019
|
|
|
700
|
|
2020
|
|
|
495
|
|
2021
|
|
|
169
|
|
|
|
$
|
2,663
|
|
Rent expense was $0.3 million and $0.2
million for the three months ended September 30, 2017 and 2016, respectively and was $0.7 million and $0.4 million for the nine
months ended September 30, 2017 and 2016, respectively.
NOTE 10. RELATED PARTY TRANSACTIONS
Sanford J. Hillsberg, one of the Company’s
directors, is an attorney at TroyGould PC. TroyGould PC rendered and continues to render legal services to the Company. The Company
paid TroyGould PC $0.1 million and $0.4 million for the three months ended September 30, 2017 and 2016, respectively and $0.5 million
and $0.7 million for the nine months ended September 30, 2017 and 2016, respectively. Mr. Hillsberg did not directly provide any
legal services to the Company during the periods noted. As of September 30, 2017, the Company had $0.1 million in liabilities owing
to TroyGould PC related to legal services.
On September 14, 2017, we entered into
a three-year consulting agreement with Iain Dukes, D. Phil, the Chairman of our Board of Directors. As compensation for his consulting
services, we granted Dr. Dukes a stock option to purchase up to 150,000 shares of our common stock, at an exercise price of $7.30
per share. Under the Consulting Agreement, Dr. Dukes agreed to provide the Company with services regarding business development
opportunities, licensing transactions and technology acquisitions by the Company, and any such strategic initiatives appropriate
for the Company that Dr. Dukes may identify. The granted stock options vest in 12 quarterly installments (with 1/12th of the option
shares having vested on the date of grant). The vesting of the granted stock options will accelerate, and the entire award will
become fully vested upon the closing of a significant licensing transaction, a material product acquisition, a material strategic
transaction, or upon a Change of Control transaction. The Company recognized $0.1 million for the three months ended September
30, 2017, and $0.1 million for the nine months ended September 30, 2017.